- EUR/GBP holds steady around 0.8660 in Tuesday’s early European session.
- BoE is expected to hold rates steady despite inflation risk.
- Markets anticipate the ECB holding the key rates on Thursday.
The EUR/GBP cross trades on a flat note near 0.8660 during the early European trading hours on Tuesday. Traders prefer to wait on the sidelines ahead of the Bank of England (BoE) and the European Central Bank (ECB) interest rate decisions later on Thursday.
The BoE is likely to keep interest rates steady at 3.75% at its April policy meeting on Thursday as policymakers buy time to assess the risks stemming from the energy crunch. BoE governor Andrew Bailey said in the last meeting that, given the UK’s weak labor market and a lack of corporate pricing power, there was no immediate need to change policy.
However, a UK economist at JPMorgan pointed to strong business activity readings and expansion in Gross Domestic Product (GDP) in February as underscoring the inflation risks. “We expect the BoE to create space for a potential near-term hike, with incoming data determining whether and when it will act,” he said.
The ECB is expected to keep its key interest rates unchanged at its next meeting on Thursday. While rates are expected to hold, markets anticipate the ECB may signal future hikes to combat persistent inflation. All eyes will be on ECB President Christine Lagarde’s press conference after the meeting for clues about the outlook for rates.
Goldman Sachs analysts see the ECB delivering two 25 basis point (bps) rate hikes in the months ahead. The first being in June, with the next in September, in bringing the deposit rate back to 2.50%.
